Inflation soars to 5.1% – how it affects your money

INFLATION has soared to 5.1% – its highest in a decade – piling more pressure on household finances.

Rising prices have already pushed up bills and the cost of living for millions of Brits.

SOPA Images/LightRocket via GettPrices are rising at a faster rate since the coronavirus pandemic[/caption]

Inflation is a measure of how much the price of goods, such as food or fuel, and services, such as haircuts or train tickets, has changed over time.

The rate of inflation is published each month by the Office for National Statistics (ONS), and this measures how much prices have changed on average over the past year.

The latest figure of 5.1% is up from 4.1% in October, 3.1% in September and 3.2% in August.

It’s the highest inflation has been since September 2011 according to the latest data from the Office for National Statistics (ONS).

Grant Fitzner, ONS chief economist, said: “A wide range of price rises contributed to another steep rise in inflation, which now stands at its highest rate for over a decade.

“The price of fuel increased notably, pushing average petrol prices higher than we have seen before.

“Clothing costs – which increased after falling this time last year – along with price rises for food, second-hand cars and increased tobacco duty all helped drive up inflation this month.

“The costs of goods produced by factories and the price of raw materials have continued to increase significantly to their highest rate for at least 12 years.”

The rate of inflation is more than double the Bank of England’s target of 2%.

What does it mean for your finances?

The average increase in prices is usually based on how much things cost today compared to a year ago and is known as the inflation rate.

So if the rate of inflation is 2% it means that prices are generally 2% higher than they were this time last year.

The higher the rate of inflation the more prices are rising.

A higher rate of inflation means your money doesn’t go as far and you have to spend more. But how much you earn may not increase at the same rate and that could leave you with less in your pocket overall.

It also means that if inflation is higher than the interest you’re earning on your savings, you are effectively losing money.

A saver with £1,000 stashed away in an easy-access cash account that pays an interest rate of 0.6% for instance, would make just £6.

But inflation means that £1,000 today would be worth 3% less in a year’s time – effectively wiping £30 off your spending power.